ANZ asset finance business receives ratings downgrade

A global ratings agency has downgraded its long-term credit rating of UDC Finance (UDC), and will keep it on CreditWatch with negative implications pending its sale to Chinese HNA Group.

S&P Global Ratings has said that it has lowered its issuer credit ratings on New Zealand-based UDC Finance. This follows ANZ’s announcement last week that it will sell the asset finance business to HNA Group, a global company focused on tourism, logistics and financial services.

In light of this, S&P Global Ratings explained that in its view, the likelihood of timely support to the New Zealand-based company from ANZ has reduced following the announcement of the sale.

“We are lowering our long-term rating on UDC Finance to ‘BBB’ from ‘A-’. The short-term rating remains A-2”, S&P said. “Our ratings on UDC remain on CreditWatch with negative implications, pending the finalisation of the sale.”

“If the sale is completed, we expect to resolve the CreditWatch status based on our assessment of the impact of the change in ownership on UDC’s SACP as well as any uplift or constraints on UDC’s overall creditworthiness due to its new parent,” S&P elaborated.

S&P said that notwithstanding the likely sale of UDC in the short term, it believes that in periods of distress for UDC in the interim (although it doesn’t expect any will arise), there remains the potential for some limited support from the ANZ group.

“That is, we consider UDC to still be a moderately strategic subsidiary of the ANZ group until the sale is concluded,” it said. “We understand that the ANZ group bears responsibility for UDC meeting its regulatory obligations and that a divestment of UDC is only possible with the regulator’s prior approval.”

S&P added that its ratings on UDC remain on CreditWatch with negative implications, reflecting its view that UDC’s credit profile remains “subject to downward pressures over the next year” if the sale is concluded.

“To resolve the CreditWatch, we will wait for certainty and completion of the sale and assess its expected impact on UDC’s SACP, which will include an updated view with respect to the new owner’s intentions for UDC’s capitalisation and funding, in particular, as well as its strategic direction,” S&P said.

Further, S&P said that it assesses the creditworthiness (group credit profile) of the HNA Group at ‘b+’, which could constrain UCD’s overall creditworthiness in its view.